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When coming for accounts receivable factoring, one of the first matters to attend to is whether the company has any current financial arrangements – do you have any outstanding loans? Having a bank loan that is secured by your business assets will legally prohibit a factoring facility to go forward…. unless;

1. The loan was secured by the owners’ real estate, then the bank might have overstepped their security position by encumbering the operational assets. There is a chance of having the bank terminate their UCC-1 filed against the company accounts receivable.
2. There are enough current accounts receivables to pay off an existing loan at closing.
3. The bank is willing to do some sort of inter-creditor agreement whereby the factoring would be carved out to allow for first position security on the receivables being financed.

The reason for all of this is based on the security position of the asset. With factoring, you are essentially financing your accounts receivable and we must have the certainty that payments made on invoices be used to pay off advances made against them. We can’t finance an invoice and have the bank collect the payments.

Additionally, a careful reading of any bank loan documents will reveal that one of the conditions on the loan would be to prohibit borrowing any capital against the collateral used to secure the loan. In other words the bank does not want their collateral to be weakened by selling off parts of it. It usually is immediate grounds for default on the loan.

So while having an existing line of credit with a bank won’t necessarily preclude using factoring, it would require circumstances to allow it to move forward.

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CCA
CCA is an active member of the International Factoring Association (IFA) which includes a commitment to high ethical standards. Over the years we have developed a wealth of experience having been involved in many complex transactions that required both speed and flexibility. With over 20 years operating in the invoice factoring industry, we are eager to work with you and partner in your success.

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